“Epstein credits” refer to a holding from the case of Marriage of Epstein. That case holds that with some important exceptions, courts must order reimbursement to one spouse if they used their separate property to pay community debts. Before the Epstein decision, there was a general rule that a party who uses their separate property to benefit the community could only be reimbursed if there was an agreement to do so.
This situation commonly occurs with credit cards, when there was a balance remaining when the parties separated, and one or the other spouse pays after. Another example is if one person pays the mortgage on the marital home, they can be reimbursed for that though this may be offset by Watts credits, which we also refer to as a Jeffries credit.
Keep in mind that Epstein credits do not apply to debts incurred post-separation, even on a card that had a balance on date of separation. It only applies to payment of debts that existed at separation. This is another reason the date of separation is an important date.
Why would the Court not order Epstein Credits?
The exception to this general rule, is that Courts will not order this reimbursement if it would be unreasonable for the paying spouse to have expected reimbursement. This often comes up when one party continues to pay these expenses as a form of child and/or spousal support, when there is no formal order for support, or if the support that is paid considered paying these expenses.
With all of these credits, keep in mind that it is the community estate that reimburses these credits. So, in general, the actual amount of reimbursing is 50% of the total amount paid, because the paying person was responsible for paying their half.
Let’s look at an example:
At separation, there is $10,000 owing on a credit card. Normally, as part of the division, each party would be awarded half of the Debt, plus any interest or other fees on the $10,000 that accrued post separation. Let’s assume $500 in interest accrues until the balance is paid, each party would be responsible for $5,250 as part of the division of property.
Of course, waiting until a settlement to pay on the debt is problematic. Late fees and interest accrues, and the parties’ credit is negatively impacted.
Now, assume Spouse A, after separation and using their separate property earnings, pays that debt down completely, and also pays $150 in the interest/fees that accrues post-separation. That person is entitled to reimbursement from the community estate of $10,150.
However, Spouse A is responsible for half of the community obligations, and would be responsible for $5,075 as their share of the community debt. This means that Spouse A would be entitled to a credit of $5,075 in the overall division of property.